International food prices have been declining in recent months, reflecting record harvests and weak global demand.
Declining food prices have in turn contributed to lower inflation in the Eurozone, the
This trend, coupled with a weak Eurozone recovery and mixed economic data in the US, suggests that the risk of global deflation remains high, according to a report by
As such, we expect the
Since the peak in 2011, global food prices have dropped significantly, largely in response to recent bumper harvests. According to the
Over the same period, rice prices have fallen nearly 31 per cent and wheat prices have declined 20 per cent. These large declines are feeding into lower food prices for consumers around the world, said the report.
While lower food prices would normally be a good thing as they lower living costs, this decline comes at a time when inflation is already very low in advanced economies and could turn inflation negative, namely deflation.
This is a cause of concern as deflation increases the real value of outstanding debts in the economy which can in turn reduce the available income available for consumption and lead to lower growth, stated the Qatari lender in its report.
Looking ahead, the IMF is projecting a further decline in global food prices (averaging -3.8 per cent in 2014-15) on record yields. The global food production outlook continues to remain favorable, with the supply of major grains and oilseeds projected to surpass demand growth for the next two years.
For the global economy, lower food prices for the next 18 months could mean a higher risk of deflation. Food prices account for only 10 per
Since the country has virtually no domestic food production, lower international food prices are likely to continue to push
According to QNB, historically low inflation in the EU, the
Deflation could potentially halt the already weak global recovery by reducing consumption—something that central banks cannot afford, it stated.
A pause in tightening monetary policy in the US would also have the added benefit of bringing greater stability to global financial markets, which have been unraveled by the tapering of quantitative easing since
Overall, the risk of global deflation remains high as bumper harvests and a weak global recovery have pushed down inflation to record lows. This is likely to keep global interest rates low for the foreseeable future, it added.-
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